2011 Upstream M&A Activity
Upstream oil and gas M&A activity remained strong in 2011 despite declining natural gas prices and a slow first half of the year. As reported in Deloitte’s Oil and Gas Mergers and Acquisitions Report Yearend 2011, “After a slow start during the first half of 2011, the deal market picked up during the second half and remained active through the end of the year. While total industry deal count in the second half of 2011 decreased slightly from second half 2010 levels, with 240 transactions taking place compared to 258 in 2010, total deal value remained very strong, increasing 29%, to $155 billion in the second half of 2011 compared to $120 billion during the second half of 2010.”
A significant portion of the deal activity was driven by unconventional plays. “M&A activity in the U.S. oil and gas sector was extremely active in 2011 as shale plays continued to attract the large multinational energy companies, foreign buyers, and private equity firms,” said Rick Roberge, principle in PwC’s energy M&A practice. In 2011 there were 68 shale-related deals with values greater than $50 million* which is less than the 85 deals in 2010, but the total value of these deals was 55% greater than the 2010 deal total ($107 billion in 2011 compared to $68.9 billion in 2010), and shale deals represented 81% of the 2011 total upstream deal value, as reported by PwC.
With declining natural gas prices, many companies are moving away from gas development and towards oil and liquid rich unconventional plays. This can be seen in the number of drilling rigs being utilized for oil versus gas, and in the deal trends..png)
“The industry continued to make a paradigm shift in 2011 with virtually every major oil and gas company taking a position in unconventional plays, “ said Steve Haffner, a Pittsburg-based partner with PwC’s energy practice. “Towards the end of last year, we saw many investors looking at the Utica shale as the next areas of interest to take advantage of the more liquids-rich resource and its proximity to major metropolitan areas.”
Foreign entities played a large role in the 2011 A&D market as pointed out by Jim Dillavou, Partner , Deloitte & Touche, “An important trend is the increased involvement by Chinese and other foreign companies in North America, principally through joint ventures. They are making acquisitions and joint venture investments in both the E&P and oilfield service segments, pursuing technological expertise as well as stakes in oil and gas reserves.” Foreign buyers accounted for $56.4 billion of the deals in 2011 according to PwC. “International players invested heavily in U.S. shale plays through joint ventures in 2011 – and we believe a trend to watch out for in 2012 is for foreign buyers to look to acquire entire companies that operate in shale plays so they can take more control of the assets through operatorship,” added Roberge.
As for 2012 the experts seem to agree we should be in for another strong year. “We said in the first half of 2011 that deals would continue as long as the price of oil stayed above $80 per barrel… we expect the price to stay above that level in 2012, so industry valuations should continue to be strong,” says Jason Spann, partner, Deloitte Tax LLP M&A Transaction Services. What remains to be seen is whether natural gas prices will recover and how the price of gas will impact 2012 deal flow.
*PwC’s analysis only includes deals of $50 million or more.
